Through A Growing Problem For Dealers, A Much Needed Solution For Obsolete Parts Inventory Is Born

The parts exchange program tackles a growing epidemic that sees dealerships holding onto slow-moving, obsolete, and idle parts inventory. Unlike other parts marketplaces, NADPE offers dealers a way to swap the parts they don’t want for parts they do want – all at full dealer cost – so there’s no loss for the dealer.

Randy Buyers, Parts Manager at Ontario Chrysler, sums up the problem, “Most manufacturers have gone to an auto-replenishment order system and it has increased inventory amounts by hundreds of thousands of dollars. Where in the past I was able to keep idle parts at zero, I now have some parts that have had a birthday and a half, sometimes two birthdays, on the shelf. It’s unacceptable, but it’s a problem for every dealer.”

Parts departments have consistently been concerned about the prohibitive structure of manufacturer parts return allowances. Dealerships are typically finding that the allotted return allowance covers only a small percentage of parts that need to be returned. With slow-moving and obsolete parts comprising up to 30 percent of inventory on the shelves of the average dealer, this is a huge issue set to increase.

Buyers’ iterates that his manufacturer’s parts return accrual has been reduced in the past several years, what was once at 6.5% has now been slashed to 2%. “It’s just not enough to keep my inventory clean. There’s just no way to send back enough parts to stay current.”

Ford Motor Company has eliminated parts returns completely for dealerships operating in the United States, except within the first 60 days of purchasing with a tight return allowance percentage on those returns as well. Forcing parts departments to liquidate unneeded inventory in alternative ways with big losses. Other manufacturers are expected to follow suit in the coming years. In the last few years, many manufacturers have already slashed their parts return allowances leaving dealers scrambling for options.

Scott Campbell, Dealer Partner at Midtown Ford, echoed the importance of the weaning off return allowance, “Return allowance accruals are anywhere from two to five percent. It’s a necessary evil for manufacturers [to reduce return allowances].”

The inability to return slow-moving parts inventory, means dealerships need to be equipped to handle a steadily increasing parts inventory that takes up space or take massive losses when liquidating parts with insufficient sales demand.

 Few Options to Disperse Idle Parts Inventory

Parts Managers have very few avenues to recoup costs for their obsolete and idle parts inventory. Some have experimented with selling parts through online marketplaces such as eBay and Craigslist; however, selling on such platforms involves a significant time investment, initial and ongoing costs to maintain required software, and a small amount of profit (selling parts one at a time nearly at cost). Being a competitive marketplace, these sites provide little return if you’re not a large dealer with a long-term strategy capitalizing on deep manufacture discounts for volume purchases.

Auctions remain an option for dealers, although just 15% on average of dealer cost on parts is recouped this way. Another option is to salvage or simply just dispose which leads to virtually no monetary return.

 Exchange Program Solution

The Parts Managers concern about idle inventory has not been ignored. A startup tech company, led by industry expert, Shawn Larkin, has focused its services on this niche. Larkin’s, background as a Fixed Operations Director led to the creation of North American Dealer Parts Exchange (NADPE) the first of its kind, parts exchange program solving the idle inventory problem.

To combat financial losses of selling idle parts inventory through different avenues, NADPE is structured as an exchange program. Participating dealers upload a list of parts in idle or obsolescent status. The inventory in the NADPE platform actively cross matches dealer inventories looking for correlations and matches – facilitating bulk trades between dealers at full dealer cost and exchanging within a dollar of each other. NADPE virtualizes the OEM’s Parts Distribution Centers using data to find where to redistribute and reallocate parts in bulk based on each dealer’s sales demand and needs.

Campbell from Midtown Ford, says, “if parts managers are staying on top of it… it’s a sure-fire way to prevent losing up to half the value of the parts.” He remarks that NADPE’s exchange program lets parts managers focus on fill rates instead of idle and obsolete parts inventory, eliminating the spiraling effect throughout the dealership.

The exchange program mitigates hard-to-swallow losses by offering trades at dollar-for-dollar values. In turn, NADPE earns its revenue from a 5.99% transaction fee – making it a pay-for-performance model.

Shawn Larking, NADPE’s CEO, says, “We certainly don’t focus on the selling aspect. As a former parts manager myself, I understand how difficult it is to justify losses on slow-moving parts inventory, no matter how long they’ve been sitting idle on the shelf. We want to offer a premium program whereby parts managers can reduce their idle parts inventory with little to no damage to their bottom line, which is why the dealer-to-dealer exchange is our focus. The idle and obsolete parts dealers need to get rid of are normally still active parts inventory in the manufacturer’s parts warehouse, meaning they are still good selling parts, they’re just in the wrong dealership. So, to take losses, to get it in the right dealership makes no sense.  Hence the exchange program”

It’s a program that Buyer’s, from Ontario Chrysler, has used on several occasions, “We had some parts which had no-sales for 7 to 15 months. [With NADPE] we moved over $142,000 of parts. The effect for me now is I’m about a month away from having parts in the building no older than 6 months.”

The program has also made an impact for Cheryl Law from Go Dodge, “After 11 months with NADPE, I’ve moved $96,245 of idle and obsolete parts inventory with just under 50 trades. I moved all of those parts at dealer cost, exchanged them for parts I could use and sell often. The amount of parts I’ve moved through them has made a big dent in my idle parts inventory.”

The Future of Parts Management

Industry standards in the past have been twelve months before a part is considered obsolete. Today’s parts manager has much less time to turn inventory.

Scott’s, from Campbell Ford, parts inventory is more stringent, “Most dealers set phase-out at nine to twelve months. I believe that if a part hasn’t sold in three to five months, there’s no reason to keep it on the shelf. I’d rather eliminate that part from inventory and replace it with parts I’ll turn over regularly. That’s where NADPE really becomes effective.”

With idle parts inventory increasing as manufacturer parts return allowance are tightened, dealers are running out of options to recoup capital. It is clear that NADPE’s exchange platform is the solution.